Ken Brandt (episode page) is the co-President of Underwriting at Trans Re and we recorded this episode on June 3, 2020. COVID-19 remains a pretty big unknown and my own initial feeling was that it wouldn’t be a big deal for insurance. My thinking is changing on this.
Let me pull out some quotes on the best and worst case scenarios for insurance from Ken’s perspective. First the Best Case:
Ken Brandt: I think our best and now I think more realistic market scenario is we actually get paid appropriately for the exposures we’re taking on… and they’ll be reinsurance pricing momentum and the opportunity to provide our customers with, you know, quality return solutions at a fair price is probably better, better now than it has been in the last decade.
Ken Brandt: Well, that’s a good question. Why we you know, it’s not like someone woke up and announced, let’s alter in the market together. You know, it’s coming from pain and anticipated pain. So if you look at what was happening, pre pandemic, the market was already moving in several large areas, particularly in the US, particularly in casualty lines…
Here’s Ken on the Worst Case:
I mean, let me without a doubt the worst worst worst case scenario, not just for trans re, the industry, is what we’re kind of hinting at here and that government or legislature’s retro actively push in business interruption coverage where none was intended. To me, that’s what do they call it when the meteors supposedly wiped out the dinosaurs.. extinction level event? Yes, that’s an ELE, you know, the industry is not capitalized for that, or will ever be capitalized to take on a large portion of the damage done to GDP by a global pandemic. So, now, I don’t think retroactive coverage is going to happen. But that’s still not resolved. But that would be a very, very bad outcome for translating for everyone else in the industry. Outside of that, you know, I think a worst case for for us and many, many others, obviously, is that COVID losses kind of hit the higher end of some of these estimate ranges. And maybe the market has additional cats along the way….
David Wright: and it’s fascinating to me about about the answers. If I think your best case and worst case scenario is, is there actually a difference of kind not really a difference of type, right, and so it’s like the best case scenario like we know we’re going to get losses. The best case scenario is the losses are bad enough that it wakes us up. But not so bad that it takes us out. And the worst case scenario is it takes us out.
Ken Brandt: Right? It’s a simple business, David
In the insurance industry some surprises are good for business because they remind the rest of us that not everything is predictable. But handle that dynamite with care! Maybe the surprise is even scarier than insurance geeks imagined. When society is rocked to its core, assumptions for how the world works must change. There’s a doctrine called legal realism that basically says the law is what people want it to be. If there is a dire social need to extract money from the insurance industry, out it comes. They’ve got the guns after all.
|I don’t think insurance will be nationalized but that thought is rooted in my belief that we will come through ok in COVID-19. If things get worse, the social contract of “we as a society will let you keep your money”, among many others, will get rewritten.|